High Drug Prices Remain a Conundrum, Analysts Say

Possible solutions: government price negotiation, bundled payments

WASHINGTON -- The problem of high prescription drug costs has no easy solution, analysts said Tuesday at an event here sponsored by Johns Hopkins University.

"It's a major problem ... and there's no light at end of tunnel," said Joshua Sharfstein, MD, associate dean for practice and training at Johns Hopkins University's Bloomberg School of Public Health in Baltimore.

Overall drug costs are growing 10%-12% a year, "far quicker than wages or medical cost growth," he added. "And it inhibits our ability to address public health problems. When we have a challenge like hepatitis C, when people can't get treatment because of the [high cost], we're all at risk."

Although many ideas for solving the problem are being discussed, none are moving forward, Sharfstein said. He noted that things could get worse if, for example, Congress were to pass something like the House Republicans' American Health Care Act, which would have resulted in the loss of health insurance for an estimated 24 million people.

"If you take 24 million people off of insurance, that generates pressure to get as much out of every insured person for pharmaceuticals as possible," meaning that drug prices could rise even higher, he said. "It's entirely possible you'd see that shift continue, and it could really worsen all the different challenges we have."

The Power of Bundles

One possible way to rein in drug costs is to make pharmaceuticals part of "bundled pricing" arrangements, in which providers get a set fee for a patient's overall care for a particular condition, said Gerard Anderson, PhD, a health policy and management professor at Johns Hopkins. He noted that although the Medicare program often includes hospital services, physician services, and home health services in these bundles, "it really hasn't put pharmaceuticals into a bundle; they're an important part of how you take care of someone." Leaving drugs out of the bundle can cause providers to make strange choices about how they use prescription drugs to treat patients, he said.

"What I think we'd want to do is include pharmaceuticals into bundled payments for knee and hip [replacements as a start], but over time, as more and more services are included in bundles, we might even do it for diabetes or congestive heart failure. We can start small, with small components of payments [being for drugs], and learn from experience."

Some see importation of drugs from other countries -- where they are cheaper -- as a possible answer, but that might only work in certain circumstances, Sharfstein said. For example, it could work in the case of a generic drug that one manufacturer is selling in the U.S. for a high price, but another manufacturer is selling overseas for much less. "The FDA can work with them to ensure [safe importation]," said Sharfstein, who is a former FDA official. "If you have an indefensible shortage [in the U.S.] and a manufacturer from another country who will work with the FDA, then absolutely do that."

If, on the other hand, it's a high-priced brand-name drug that's at issue, it might not work to try to import the drug from another country, since it's being sold by the same manufacturer there and that company would know what's going on, he said.

Although concerns about drug safety are brought up as a possible barrier to importation, "the majority of ingredients for the medications we [take] are manufactured overseas [already]," said G. Caleb Alexander, MD, co-director of the university's Center for Drug Safety and Effectiveness.

Price Negotiation a Possibility

Having Medicare negotiate with drug companies is another idea often mentioned; one way to do that would be to have Medicare use whatever price the Department of Veterans Affairs was paying as a limit, so if Medicare couldn't reach an agreement with the drug company, it would just pay the VA price. "I think that's an interesting proposal," said Aditi Sen, PhD, assistant professor of health policy and management at Johns Hopkins. "Give them a year and if they can't reach an agreement, Medicare would have the 'guard rail' of the VA price ... That could bring people to the table."

Currently, the pharmaceutical companies assume that, especially with the higher-priced drugs, many people won't be able to get the treatment, Sharfstein said. "They are setting a target of revenue; they are assuming the vast number of Americans with the disease will not get treated." He cited a report from the Senate Finance Committee about drug pricing. That report found, for example, that from the $1.3 billion that Medicaid programs in 50 states and the District of Columbia spent on the hepatitis C treatment sofosbuvir (Sovaldi) in 2014, they were able to provide treatment to 16,281 enrollees, "constituting less than 2.4% of at least 698,000 Medicaid recipients nationwide believed to carry the disease."

"Where does that leave us as a country?" he said. "We need to use some pretty extraordinary authority to make sure people still have access to medicine." Sharfstein noted that a report by the National Academy of Medicine on how to rid the U.S. of hepatitis B and C suggested that the federal government buy the rights to an anti-viral hepatitis medication so it could then distribute it to neglected populations such as patients in the Indian Health Service or on Medicaid.

Everything is a Tradeoff

One facet of the issue is the delicate balance between keeping prices low enough to give many patients access to drugs, and allowing pharmaceutical manufacturers to make a reasonable profit on a drug they develop so they can keep developing new drugs, said Anderson. "We're making a tradeoff between people benefiting today and people benefiting tomorrow ... What we're seeing with these long [patent] exclusivity periods is that a lot of people are not benefiting today."

Congress is trying to address patent exclusivity, Sen noted; legislation sponsored by Sen. Al Franken (D-Minn.) would ban so-called "pay for delay" arrangements in which a brand-name drugmaker pays a generic company to delay making a generic version of a drug.

The federal government also should take a closer look at the prices different agencies are paying for the same drugs, said Anderson. "We have to look at how many different purchasers there are in the federal government -- the VA, Department of Defense, Bureau of Prisons, Medicare, Medicaid -- they're all using very different formulas to purchase drugs, whereas in other countries, there's only one purchaser ... There seems to be a difference between what the VA pays and what Medicare pays for the identical drug."

At the federal level, nothing is going to happen unless the government decides who is in charge of drug prices, Sharfstein said. "The FDA sees its primary responsibility as the safety and efficacy of products on the market, and they do get involved in the dynamics of the market, particularly with shortages. But that is really a small part of the overall pricing challenge, and it's not going to be the FDA who will be setting prices ... On other hand, it's got to be someone's job. if you care about something, you put someone in charge of it, and the federal government ... has yet to put someone in charge of drug prices."